Transcript of the beginning of the meeting:

Vladimir Putin: Ladies and Gentlemen,

Today's session of the Government Council for the Advancement of the National Film Industry is taking place in a venue of special significance to every cinema lover. The Gosfilmofond state film archive is the world's largest motion picture conservation centre. It holds more than 60,000 movies, as its director has just now told us, and this collection reflects the history of Russian as well as world cinema.

Each new generation creates its own cinema, bringing its own heroes to the silver screen. And it's largely on the basis of contemporary movies that an image of our time will be formed (by future generations).

We all want contemporary Russian cinema to become part of the national artistic heritage as well as the world's. Members of the professional community present here today could make this happen if provided with adequate government support. Creating conditions for the advancement of the film industry and the fulfillment of our nation's creative potential is one of the government's responsibilities.

A year ago, we discussed in detail how things stood at the time with regard to the government's support of the film industry. We agreed that the plans then in place were out of touch with reality and that Russian cinema badly needed some new, relevant modes of interaction with the state.

The establishment of the Federal Fund for Social and Economic Support of the National Film Industry was one of the first important steps toward reforming this system. At our council's initiative, the Fund was given the right to produce and promote Russian feature films as well as to provide assistance for promising film studios, reputed for the consistently high quality of their output.

Let me remind you that the Fund was established in keeping with the Russian Government resolution of December 31, 2009.

The Fund provides financial support for successful studios that lead in box-office proceeds and professional awards and are, consequently, in a position to recoup production costs. It also pays bonuses for pictures that have drawn an audience of above 1 million and contribute to the creation of socially significant films, notably with patriotic and educational content oriented toward young audiences.

The Culture Ministry, meanwhile, will continue attending to children's cinema, debut productions, and documentary and animation films, as well as arranging film festivals and competitions.

This step was perfectly in tune with current trends in the world's film industry as well as with the national movie business's priorities – that is, making bright, competitive motion pictures and creating a stable and commercially viable film market.

We got the fund up and running at the beginning of 2010. Given the film industry’s peculiarities, we won’t be able to review the initial results until autumn. But we can attempt to analyze today what has been achieved to this point and how successfully the fund’s plan is being implemented.

The government allocates substantial sums to support the film industry, let me tell you. The 2011 federal budget earmarks more than 4.3 billion roubles for this purpose, with about 1.4 billion to be allocated through the Ministry of Culture. Another 2.9 billion has been put aside to implement the fund’s own plans.

The question is how effectively these allocations will be spent.

Many say the key problem of Russia’s movie industry is that filmmakers gauge the success of their productions based on criteria other than public acclaim and box-office proceeds. This is an attitude, al least, from the old system, where there was no need to win large audiences when financing was secured during the production process. 

True, the movie industry is a powerful business. But it’s also a powerful art form. The world’s leading filmmakers prove this spectacularly with their well-crafted and compelling output.

Statistics show that of the 338 films screened in Russia in 2010, only 69 were made domestically. This is not for the lack of Russian movies, but rather that most of them aren’t good enough to do well at the box-office. The country’s distribution and screening process is also far from perfect of course, but I’ll get back to that later.

Having said that, this disparity between foreign and domestic pictures screened is only part of the problem. I don’t think we should impose any restrictive quotas here, giving priority to some over others. It should be up to moviegoers to decide which films are worth seeing.

Laymen often prove more competent in assessing a film’s quality than art critics. Blockbusters with multimillion rouble budgets, including those that are partially subsidized from government resources and have a lot of media publicity may well fail to draw a large audience. While productions made on a shoestring can win wide public acclaim as well as prestigious international awards from the professional community.

Representatives of several generations of film makers are taking part in our meeting today, including young talent. Without the participation of aspiring filmmakers, our conversation about the future of Russian cinema would be incomplete, I think.

I ask all of you to feel free to share your opinion about the current situation in the national movie industry and about where it should be heading.

Another subject, which I alluded to just now, is the infrastructure of film viewing. Statistics give a good idea of what the situation is like. Russia had 2,246 functioning movie theaters as of last year, all of them concentrated in 137 cities. But this country has more than a thousand cities and many more towns and villages. According to preliminary estimates, we should launch at least this many new movie theaters to satisfy the actual demand. But even if we meet this target, we’d only have a third the number of movie theaters as those in developed market economies, such as the U.S.

One should bear in mind that the creation of a ramified screening infrastructure is not a purely commercial objective. Equally important is to make film, as an art form, accessible to wider audiences. I’m sure you’ll agree that cinema has a high educational potential, and can promote high civic and moral values, as well as mutual respect and tolerance, which is all the more relevant in a multi-ethnic and multi-faith country like ours.

As I understand it, some specific proposals have been prepared for today’s meeting, ones related to the construction of new, modern movie theaters. Mr Bondarchuk has something to tell us about this.

Before I came here, I had an opportunity to talk with officials from the Ministry of Culture and the Ministry of Finance. They have certain ideas on this…

So let’s get down to work.

Alexander Avdeyev: Ladies and gentlemen, esteemed members of the Governmental Council! The introduction of a new mechanism of government support for film production was, indeed, the event of the year in movie industry management. And Mr Putin described it as such.

The Culture Ministry can now allocate part of its expenditures as subsidies while the Film Fund acts as an independent distributor of treasury money among film studios.

The establishment of this Fund is important not only in terms of improving the filmmaking mechanism. It’s an example of the government delegating some of its powers in film industry financing to civil society, a practice common to nations with developed movie industries. And in this sense, the Fund marks a momentous societal transformation as well.

The Culture Ministry’s interaction with the Fund has been quite effective and businesslike so far, and we seem to get along well together. The ministry believes we should continue working hand-in-hand toward a harmonious partnership.

But since we’re reviewing the year, we should consider the shortcomings of the new mechanism as well as its advantages, I think.

The film community continues to be embroiled in heated debates over the criteria for selecting the eight leading companies. Many professionals are skeptical about the prospect of having to apply for funding with a private company rather than the state.

We’ve held quite a few meetings with film professionals on the ministry’s premises.

People involved in the production of children’s films and documentaries (they are our clients), features, as well as young filmmakers – they all say that they’re accustomed to the old, government-run system, in which they were all treated as equals, and that it will take time for them to readjust to this new scheme, centered around the Magnificent Eight, so to speak…

Vladimir Putin: You believe that the old system could guarantee equal opportunities to all?

Alexander Avdeyev: To a greater extent than the new one. Studios will now have to submit their projects to some private company and try to peak its interest.

Vladimir Putin: That’s a matter of criteria, I think.

Alexander Avdeyev: Yes.

Vladimir Putin: A matter of selection criteria, that is. Sorry to have interrupted you.

Alexander Avdeyev: But people have their doubts, you know. I’m not idealising the situation. The point I’m trying to make is that we should reassure them through further positive interaction with the Fund and by further improving its efficiency, so that they’ll have their concerns dispelled over time. 

Let me make it clear once again that the film community is concerned, first, by the fact that to get funding for a new film, they will now have to to apply for funding with a private company and to submit their scripts to a private company. And, second, they have certain doubts over the criteria set for selecting the eight companies in charge of distributing the money.

There’s been a lot of talk about it recently, including in the media. The Ministry and the Fund intend to improve the selection criteria so as to make them consensus-based and to convince our filmmakers that there is nothing really degrading about applying for funding with a private distributor.

Vladimir Putin: It’s true. All that funding comes from the treasury, anyway.

Alexander Avdeyev: Exactly.

Vladimir Putin: No one will have to beg for a handout. It’s public funds that those eight companies will be distributing. So that’s rather a matter of selection criteria and impartiality – things we should focus on.

If you or anyone in attendance believes that there are shortcomings, let’s examine them objectively, on a case-by-case basis, and set them right if we can.

Alexander Avdeyev: Life will set things right, I think. And we’ll contribute to that process. Everything will turn out alright. This is the first year, so it’s only natural that there should be hitches holding back our progress. But we mustn’t let ourselves be discouraged.

As you said, the funds will come from the treasury, anyway.

Let me now pass on to another problem: the uneven playing field for tax-payers. Much tougher tax regulations apply to the allocations we make toward debut and art-house films than to the money distributed via the Fund.

We’ve agreed with the Finance Ministry to level out the playing field to the benefit of the filmmakers. We’ll try to alleviate the tax burden on debut and art-house film funding.

Deputy Finance Minister Sergei Shatalov, who is present here today, has promised to work with us toward that objective.

Vladimir Putin: Mr Shatalov, what’s the problem? The financier is a public organisation, right?

Sergei Shatalov: No, the problem lies in the structure of the profit tax, which is withheld from the difference between income and expenditure. As for money distributed through the Fund, we’ve agreed to let them record incomes alongside expenditures for a period of three years, so that unspent allocations are not counted as profit at year’s end. The expansion of this three-year scheme to all public funds will resolve this problem.

Vladimir Putin: Yes, of course, it needs to be done because the production of feature films is a long process; you can’t just do it in five minutes, so it needs to be done.

Alexander Avdeyev: The money at stake here, Mr Putin, is a 20% tax on the sum. That is a lot of money. I would also like to emphasise that in recent years, primarily art films have won the prizes at festivals and contests. Art cinema is still the mainstay of the Russian cultural heritage in the field of cinema. We have a wonderful heritage. By the way, many film directors who have won prizes at film festivals are present here. Art cinema is financed by the Ministry.

I would also like to say that the funding of cinema d’auteur is shrinking gradually. Why? Because it so happened that this year we received nearly 300 million less under the federal target programme, while we have continued to remit the same amount that was fixed last year by a government resolution. So, we leave less cash for ourselves, and, as a result, the ratio between the money that goes into the fund and the money that remains to finance cinema d’auteur and children’s cinema is changing. Consequently, the opportunities to finance cinema d’auteur, children’s cinema, documentaries, and debuts are diminishing.

Fourth. Last year the board pressed the need to assist educational establishments. This year we decided to launch an experiment entrusting a full-length feature film to graduates of VGIK (the Cinema Institute), which had never been done before. It will mark a debut in high-profile cinema not only for the director but for other young film professionals. If it pans out well, this practice can be spread and expanded. We will give VGIK graduates a certain amount of money each year – enough to make a feature film.

At the previous meeting, the Ministry was instructed, jointly with other agencies, to study the issue of creating research and educational centres at VGIK and the St. Petersburg State Cinema and Television University. So far we have done so only with regard to VGIK. The government issued an executive order to this effect last December. As for the research and educational centre in St. Petersburg, we encountered some legal problems because the organisations to be incorporated into the cinema and television university had different legal status. To incorporate them, they first had to be liquidated, whereupon all the property had to be transferred to the Treasury, as I understand it, and only then returned to these complexes. This gives us some cause for anxiety because real estate and all the property will be in limbo for a certain period of time, and they must end up exactly where we want to transfer them, which means that Rosimushchestvo will have to step in. We are working on that. So far we don’t have any particular requests.

Another serious problem that came up for discussion at our meeting a year ago is that we need to revise our spending on the maintenance of the two film universities. We keep them on a lean diet: they have a small wage fund, and obviously that spending must be increased, both for the upkeep of VGIK and of  Petersburg University. We will try to put it in the 2012 budget, but unfortunately we could not add it to the 2011 budget.

The previous meeting of the board authorised the development of proposals on amendments to the laws of the Russian Federation aimed at restricting the illegal distribution of audio and video works via the Internet. We are working together with colleagues from the Telecommunications Ministry, the Interior Ministry, the Economics Ministry, and the Justice Ministry on several government instructions to this effect. The problem concerns not only cinema, but also electronic libraries, museums, archives, music, and television content.

Last year we carried out several scientific and practical measures and formulated the principles of the use of protected objects on the Internet, and the Private Law Research Centre developed a plan for introducing priority amendments to the civil legislation. We will now introduce these amendments. Some problems arose in fulfilling the instruction to allocate targeted subsidies for state support of the participation of Russian producers and directors in educational programmes in and outside Russia in 2011 because the law on state support of the film industry does not provide for such funding.

Ninth. On the creation of a film-making complex in St. Petersburg in succession to Lenfilm Studios and AFK Sistema Studios on the basis of  public-private partnership. In 2010 the issue was discussed jointly with the Economics Ministry, Rosimushchestvo, and the Anti-Monopoly Service. We opted for the creation of an open joint-stock company, Unified Lenfilm Studios, which will incorporate Russian World Studios, which in turn is contributing the film studio in St. Petersburg as their share in the authorised capital. The government stake in the new joint-stock company should be at least 25% plus one share. For the decision to take full force and effect, it is necessary to issue a presidential decree on the foundation of a new studio and on the contribution of 100% of Lenfilm into its authorised capital, as well as a corresponding executive order of the Government. These draft documents were submitted to the government last December.

Tenth, regarding banks’ rights to use films being created as collateral for credit. The Ministry of Culture and AFK Sistema have considered this issue. In February of last year we submitted a proposal to the Government concerning a process for issuing credit to the film industry to raise additional off-budget funds.

A plan for the interaction between the participants of this process has also been developed. The main problem in using films as collateral for bank loans is a guarantee that shooting will actually be completed and the evaluation of its cost as an intangible asset and as collateral. We have set up an ad hoc group for this issue; we intend to bring in independent experts and representatives of the companies that can guarantee the completion of a film. Private commercial banks and insurance companies, unfortunately, take a very guarded view of the idea of crediting film projects and insuring the risks connected with their commercial success or lack of it. Therefore we believe the working group consisting of government representatives and private companies needs more time to study the issue. That is all I have to say on the results of the work pursuant to the decisions of the previous council meeting, Mr Putin. Thank you for your attention.

Vladimir Putin: Thank you very much. I suggest that we now hear from Sergei Tolstikov, the managing director of the fund.

Sergei Tolstikov: Thank you. I will skip the reasons for the creation of the fund and move directly to my report.

The fund began its activities in a new capacity pursuant to the government resolution On Granting Subsidies in Support of the Film Industry which also identified leading companies. The criteria for selection included a films box office and television success, professional recognition of the quality of the films, awards and prizes won at festivals, and the stability of companies, which were required to have been in business for several years. The selections were made in close coordination with the Ministry of Economic Development which has the necessary competence with regard to such matters. As a result, the fund’s board of trustees selected eight leading companies. I will not recap which ones; I will just say that in 2009 they accounted for about 19% of the films released in this country, for 37% of the total film production budget, and for 64% of the box office receipts. It is important that the ratio of box office receipts to the budgets of these leading companies was 94%, that is, they were still unprofitable, but all the other companies reported a ratio of just 29%, which indicates a serious qualitative distinction. To sum up, I should say that the absolute majority today agree that these companies are capable of producing high-quality films of various genres and in various budget ranges, which is also important.

I will not dwell on the criteria. I think those that have been proposed are well grounded. Two concrete remarks that we would go along with have to do with two items that we overlooked. Profitability is of course an issue. The main problem with profitability was that proceeding from the documentation that existed in film production at the time, it was hard to make sound conclusions as to whether or not a film was profitable because the documentation was, in many ways, less than professional. The fund has developed all the necessary procedures and documents, signed an agreement with the Ministry of Culture and formed expert advisory councils. In early July this year we started funding the selected companies. The board of trustees held four meetings and six votes by written notice in absentia.

A more specific report on the financial activities of the fund is contained in this brochure, so I will give you just the main figures.

During 2010 the fund lent 2 billion roubles to eight leading companies, 250 million roubles apiece. They used that money to finance 37 projects – different genres, different budgets. Most of the films are due to be released this year. The fund today contributes 35% of the total budget.

That share will naturally increase in 2011. An important point is that the leading companies have three-year business plans which make it possible to optimize the production process. In fact they got everything they asked for. The fund does not perform the function of an associated producer, as was the case with Goskino in Soviet times. Nevertheless we get regular reports and we are fully aware of where our money is and how it is being spent. We are planning to move forward with these companies and perhaps try to standardize not only the format of reporting, but set some general expenditure benchmarks in various areas. In short, we are going to introduce recognised financial procedures and mechanisms to the industry. This is all the more necessary because investors, including banks, play an important role in financing film production, as Alexander Avdeyev mentioned.

Another issue is the mechanism for repayment of part of the loan. On one hand, state support for management has the character of compensation: above all it’s the replacement of revenue shortfalls due to piracy and the limitations of the infrastructure. On the other hand, our support must be tied to results and to the motivation of these companies to achieve economic success. At present, under the agreements signed between the fund and these companies, 5% of the total revenue returns to the fund. Perhaps that figure can be increased with a new decision by the board of trustees. Another type of financial support, in addition to supporting management, is awards for companies that have participated in making a film that was seen by more than 1 million people, the prime minister has issued an instruction to the effect. The panel of experts selected eight companies and we allocated 150 million roubles to them. That measure was also part of the support for films that attract audiences and it too constitutes financial monitoring because the money can only be used on specific projects.

Finally, the body of so-called socially significant films. Of course all films are socially significant in one way or another. But looking at the background of this issue, at the time the fund was created we received a letter from the Ministry of Culture offering to help finance some projects that have been actually approved by the ministry in line with some government decisions. These projects had to do with the anniversary of Gagarin’s spaceflight, the 1812 war and some other topics. Because the fund is committed to making popular films, we thought it would make sense and we allocated resources for these purposes. True, in the wake of that move we received more than 100 proposals concerning that topic. The panel of experts, having considered each and every one of them, recommended putting some of them on the agenda for the board of trustees proceeding above all from the quality and the personality of the directors. In the end, a total of 58 projects received support from the fund. If you add the dozens of full-length film projects funded by the Ministry of Culture we have an answer to the question as to whether there is a paucity of pictures that worried some critics so much when this new approach was introduced.

In accordance with its charter, the fund should contribute to the development of the whole spectrum of the domestic film industry. The fund has formulated its position on many pressing issues in the development of the whole system: film screening, piracy, education and the press. The fund’s approach is that it is necessary to support the most active and committed participants in the market. For example, RWS (Russian World Studios) and Bazelevs take a very active stand on piracy issues. In education, the association of TV and cinema producers, in film screening it is the Kinoklub project which has already been mentioned.

These topics are on today’s agenda.

It is very important for us that the government resolution endorsed the amount of money channeled to support the cinema through this fund. This factor was mentioned when we all spoke about the need for the process to be predictable in financial terms.

As for new developments this year, we will try to create a platform for the support of children’s and family cinema which is aimed mainly at children. We are not competing with the Ministry of Culture. We are attempting to bring this kind of cinema to the audience considering the current approach to this theme. We will have more discussions on this. We are also planning to support several co-production projects with other countries with the main objective of upgrading the quality of films and promoting our cinema abroad. We will be in a position to have a hands-on discussion of the strengths and weaknesses of this new model and make a preliminary review of the results toward the end of this year. We will prepare a detailed report, with recommendations on the whole system while focusing on economic aspects.

But there is one aspect of this system on which we have started work where we would like to have the support of the Government Council, and that is the connection between the overall amount of government support and the parameters and results, above all the results of the film industry, in order to come up with a kind of formula. This is really about creating the so-called para-fiscal system of government support, which has acquitted itself well in other countries. That would certainly make the domestic film industry more predictable and effective.

Let me explain. We are not asking for more money, but we want it to be tied to certain parameters of the activity of the film industry. Then we will have more clarity as to the health of that system in the foreseeable future.

We have no doubt that Russian audiences want and will get good and interesting Russian cinema. At the end of last year and the beginning of this year only two films, Bekmambetov’s “Spruce Trees” and Selyanov’s “Tri Bogatyrya I Shamakhanskaya Tsaritsa” (Three warriors and the Shamakhan Tzaritsa) grossed 50 million dollars at the gates. If we have eight to ten such films a year that will account for more than 30% of total box office receipts. That is all, in a nutshell. Thank you.